Google’s reinvention of its HR function through people analytics has had a dramatic impact on its business success, writes Dr John Sullivan
Google is one of the most valuable firms in the world by market capitalisation thanks to its forward-thinking approach to HR and people analytics. The majority of the world’s most valuable companies could be accurately described as old school, because most can attribute their success to being nearly half a century old, having a long-established product brand, or through great acquisitions.
A new kind of people management
Google’s market success can instead be attributed to what can only be labelled as extraordinary people management practices that result from its use of people analytics. The extraordinary marketplace success of Google and other top companies by market capitalisation (such as Apple) is beginning to force many business leaders to take notice and to come to the realisation that there is now a new path to corporate greatness.
“New path” firms dominate by producing continuous innovation. And executives are beginning to learn that continuous innovation cannot occur until a firm makes a strategic shift toward a focus on great people management. A strategic focus on people management is necessary because innovations come from people, and you simply can’t maximise innovations unless you are capable of recruiting and retaining innovative workers. And even then, you must provide them with great managers and an environment that supports innovation.
Unfortunately, making that transition to an innovative firm is problematic because almost every current HR function operates under 20th century principles of past practices, efficiency, risk avoidance, legal compliance and hunch-based people management decisions. If you want serial innovation, you will need to reinvent traditional HR and the processes that drive innovation.
Data-based people management decisions
The basic premise of the “people analytics” approach is that accurate people management decisions are the most important and impactful decisions that a firm can make. You simply can’t produce superior business results unless your managers are making accurate people management decisions. Many do argue that product, R&D, marketing, or resource allocation decisions are instead the most impactful decisions.
However, each one of those business decisions is made by an employee. If you hire and retain mostly mediocre people and you provide them with little data, you can only assume that they will make mediocre decisions in each of these important business areas, as well as in people management. No one in finance, supply chain, marketing, etc would ever propose a solution in their area without a plethora of charts, graphs, and data to support it, but HR is known to all too frequently rely instead on trust and relationships.
“If you want serial innovation, you will need to reinvent traditional HR and the processes that drive innovation”
People costs often approach 60 per cent of corporate variable costs, so it makes sense to manage such a large cost item analytically. Google’s success has to be attributed in large part to the fact that it is the world’s only data-driven HR function. Google’s business success should convince executives at any firm that wants to grow dramatically that they must at least consider adopting the data and analytically based model used by Google. Its approach has resulted in Google producing amazing workforce productivity results that few can match (on average, each employee generates nearly $1 million in revenue and $200,000 in profit each year).
Reinventing HR with people analytics
HR at Google is dramatically different from the hundreds of other HR functions that I have researched and worked with. To start with, at Google it’s not called human resources; instead, the function is called “people operations”. The VP and leader Laszlo Bock has justifiably learned to demand data-based decisions everywhere. People management decisions at Google are guided by the powerful “people analytics team”.
Two key quotes from the team highlight their goals: “All people decisions at Google are based on data and analytics” and the goal is to … “bring the same level of rigor to people-decisions that we do to engineering decisions”. Google is replacing the 20th century subjective decision-making approach in HR. Although it calls its approach “people analytics”, it can alternatively be called “data-based decision-making”, “algorithm-based decision-making” or “fact or evidence-based decision-making”.
How Google’s people analytics works
The people analytics team reports directly to the VP and it has a representative in each major HR function. It produces many products, including dashboards and employee surveys that are not anonymous. It also attempts to identify insightful correlations and to provide recommended actions. The goal is to substitute data and metrics for the use of opinions. Almost everyone has by now heard about Google’s free food, 20 per cent time, and wide range of fun activities but realise that each of these was implemented and is maintained based on data. Many of Google’s people analytics approaches are so unusual and powerful, I can only describe them as “breathtaking”. Below I have listed my “top 10” of Google’s past and current people management practices to highlight its data-driven approach:
1. Leadership characteristics and the role of managers. Its “project oxygen” research analysed reams of internal data and determined that great managers are essential for top performance and retention. It further identified the eight characteristics of great leaders. The data proved that rather than superior technical knowledge, periodic one-on-one coaching which included expressing interest in the employee and frequent personalised feedback ranked as the number one key to being a successful leader. Managers are rated twice a year by their employees on their performance on the eight factors.
2. The PiLab. The PiLab is a unique subgroup that no other firm has. It conducts applied experiments within Google to determine the most effective approaches for managing people and maintaining a productive environment (including the type of reward that makes employees the happiest). The lab even improved employee health by reducing the calorie intake of its employees at their eating facilities by relying on scientific data and experiments (by simply reducing the size of the plates).
“At Google it’s not called human resources; instead, the function is called ‘people operations’”
3. A retention algorithm. It developed a mathematical algorithm to proactively and successfully predict which employees are most likely to become a retention problem. This approach allows management to act before it’s too late and it further allows retention solutions to be personalised.
4. Predictive modelling. People management is forward looking at Google. As a result, it develops predictive models and uses “what if” analysis to continually improve their forecasts of upcoming people management problems and opportunities. It also uses analytics to produce more effective workforce planning, which is essential in a rapidly growing and changing firm.
5. Improving diversity. Unlike most firms, analytics are used to solve diversity problems. As a result, the people analytics team conducted analysis to identify the root causes of weak diversity recruiting, retention and promotions (especially among female engineers). The results that it produced in hiring, retention and promotion were dramatic and measurable.
6. An effective hiring algorithm. One of the few firms to approach recruiting scientifically, it developed an algorithm for predicting which candidates had the highest probability of succeeding after they are hired. Its research also determined that little value was added beyond four interviews, dramatically shortening time to hire.
Google is also unique in its strategic approach to hiring because its hiring decisions are made by a group in order to prevent individual hiring managers from hiring people for their own short-term needs. Under project Janus, it developed an algorithm for each large job family that analysed rejected resumes to identify any top candidates who they might have missed. They found that they had only a 1.5 per cent miss rate, and as a result they hired some of the revisited candidates.
7. Calculating the value of top performers. Google executives have calculated the performance differential between an exceptional technologist and an average one (as much as 300 times higher). Proving the value of top performers convinces executives to provide the resources necessary to hire, retain and develop extraordinary talent. Google’s best-kept secret is that people operations professionals make the best “business case” of any firm in any industry, which is the primary reason why they receive such extraordinary executive support.
8. Workplace design drives collaboration. Google has an extraordinary focus on increasing collaboration between employees from different functions. It has found that increased innovation comes from a combination of three factors: discovery, collaboration and fun. It consciously designs its workplaces to maximise learning, fun and collaboration. Managing “fun” may seem superfluous to some, but the data indicates that it is a major factor in attraction, retention and collaboration.
9. Increasing discovery and learning. Rather than focusing on traditional classroom learning, the emphasis is on hands-on learning (the vast majority of people learn through on-the-job learning). Google has increased discovery and learning through project rotations, learning from failures and even through inviting external speakers like Al Gore and Lady Gaga to speak to their employees. Clearly, self-directed continuous learning and the ability to adapt are key employee competencies at Google.
“Consider the distinct possibility that your firm’s low-capability people management practices are actually restricting your firm from producing higher margin products and services”
10. It doesn’t dictate; it convinces with data. The final key to Google’s people analytics team’s success occurs not during the analysis phase but instead when it presents its final proposals to executives and managers. Rather than demanding or forcing managers to accept its approach, it instead acts as internal consultants and influences people to change based on the powerful data and the action recommendations presented. Because its audiences are highly analytical (as most executives are), it uses data to change present opinions and to influence.
Becoming a talent magnet
Google is a “talent magnet” firm and that is its primary driver of success, just like it is for the New York Yankees in baseball and Barcelona in soccer. It is wildly successful because it attracts and retains extraordinary talent, and it can expand and grow because it can attract that talent in any new field or job family. As a result, the primary reason to copy and learn from Google is that if you could successfully attract and retain the same calibre of top talent and innovators that it does, your firm would also dominate not just your current industry but any industry or product line that you chose to go into. You should also consider the distinct possibility that your firm’s low-capability people management practices are actually restricting your firm from producing higher margin products and services.
Unfortunately, most executives (even those inside HR) are not aware of Google’s analytical approach. Once they understand the approach, however, executives quickly see the difference and they prefer the analytical model because it matches the way that decisions are made in every other major business function. Because Google has proven the business impact of “reinventing HR”, the time has come for the last bastion of non-analytical decision making (that is, HR) to shift to a data-based model. You simply can’t improve what you don’t measure, and so much of HR is poorly measured or not measured at all.
A remaining major problem is that many in HR are severely deficient in the areas of mathematics, predictive analytics and statistics, so they may not be capable of making the shift. Other HR traditionalists (of which there are many) may resist simply because they don’t feel comfortable with having “what they do” reinvented.
Look at the extraordinary success that both Google and Apple produced after they made the shift to become “innovation companies” and talent magnets. Both have moved from literally nowhere in the competitive landscape to market cap and product domination within the last decade. You could assume that their success was based on their buildings and equipment and try to duplicate them. However, it wouldn’t take long for you to figure out that rather than buildings or equipment, it is their ability to attract and manage innovators. The game has changed, and it is no longer the largest or oldest firms that win.
Instead, it is the firms with the most innovators that win.